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Simone's OncOpinion: Where Does the Health Care Money Go?

A recent Medicare report showing what some specialty doctors earn (from Medicare alone) has caused a bit of a swirl. The incomes reported for some specialty physicians were in the six- to eight-digit range, which got everyone's attention. The knee-jerk reaction was that doctors make too much money and have major responsibility for the high cost of care in the U.S. As with almost everything in our flawed U.S. health “system” (no sane businessman, though, would call it a system, much less an efficient system), it isn't that simple, and singling out physicians doesn't conform to the facts. There are plenty of culprits that deserve some of the responsibility for the high cost of care.

Of course, doctors as a group are not completely blameless. It is well known that a significant minority of physicians overprescribe medications for no medically justifiable reason. More common is the excessive use of diagnostic tests—especially imaging.

But as Elisabeth Rosenthal pointed out in the New York Times—“Medicine's Top Earners Are Not the MDs”(17 May 2014), doctors' income pales compared with what is paid to the administrators of medical care. According to an analysis by Compdata Survey, the average base pay for insurance CEOs is $584,000; for hospital CEOs, $386,000; and for lower rank hospital administrators, $237,000. The average for surgeons is $306,000 and for a general practitioner, $185,000.

But even those numbers don't tell the whole story about the income gap between administrators and physicians, Rosenthal notes, since most top executives earn the bulk of their income in non-salary compensation. For example, in 2012 the year of his retirement, the CEO of Aetna earned a salary of about $977,000, but the total compensating package was over $36 million, most from stocks vested and exercising stock options. The former president of Barnabas Health in New Jersey earned a salary of $28,000 in 2012 but a total compensation of $21.7 million. Barnabas Health listed 20 vice presidents who earned over $350,000, and the latest CEO's base salary is $3 million. I assume that none of these payments is illegal.

But where is that money coming from? Data released by Medicare show that Barnabas Health's hospital bill is more than twice the national average for many procedures. In 2006, Barnabas paid one of the largest Medicare fines every to settle fraud charges brought by federal prosecutors.

Cathy Schoen, a senior vice president for policy, research and evaluation at the Commonwealth Fund, told Rosenthal, “At large hospitals there are senior VPs, VPs of this, that, and the other. Each one is paid more than before and more than in any other country. The pay for the top five or 10 executives at insurers is pretty astounding—way more than a highly trained surgeon.”

The Times article goes on to report the increasing disenchantment of doctors for the high cost of care and frustration with what they believe is excessive staffing of administrators that in itself inflates the cost of care with no apparent advantages.

Some doctors are taking action. In Wisconsin, a surgeon discovered that his fee of $1,700 for an outpatient appendectomy also generated more than $12,000 in hospital charges, including $6,500 for operating room and recovery room charges. The surgeon and 74 other doctors in Wisconsin are demanding widespread reform in pricing, penalizing hospitals for overbilling, and requiring that 95 percent of insurance premiums be used on medical care.

This may sound like Don Quixote, but we have also seen highly publicized pushback on chemotherapy pricing from physicians at Memorial Sloan Kettering Cancer Center and MD Anderson Cancer Center.

Even more hopeful is the analysis by Carrie H. Colla et al in Health Affairs (June 2014;33:964-971), showing that physicians are playing a major role in Accountable Care Organizations that have been formed so far. A national survey of 203 ACOs showed that 51 percent were physician-led, and another 33 percent were jointly led by physicians and hospitals. In 78 percent of the ACOs, physicians constituted a majority of the governing board and physicians owned 40 percent of the ACOs. This may be a tremendous opportunity for the physicians to put their money where their mouths are and take appropriate action for raising the quality of care and lowering its cost.

There are other factors that boost the cost of care, including piles of paperwork, ineffective follow-up, waste, and treating patients with therapies that provide no chance of cure or even a good quality of remaining life.

Fixing some the causes described above will not be easy, but if we expect to make health care affordable, the medical profession must take the lead wherever possible to get the system on a better path.

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